Business Directories

Gold undermined by dollar strength

London, May 16, 2011

Gold was undermined on Monday by the dollar's rise against the euro on uncertainty about aid for indebted euro zone countries, which also sparked some safe-haven buying of the precious metal.

Spot gold was bid at $1,490.14 a troy ounce at 0933 GMT from $1,493.25 late in New York on Friday. The precious metal hit a record high of $1,575.79 on May 2. US gold was down 0.2 per cent at $1,490.60 an ounce.

The dollar rose to a seven-week high against the euro as news that IMF chief Dominique Strauss-Kahn had been accused of attempted rape added to uncertainty.

'If you have a strong dollar you will see gold fall, but in euro terms, gold will probably do quite well,' said Dan Brebner, analyst at Deutsche Bank.

Gold was around 1,057 euros, little changed from Friday's levels, and within touching distance of all-time highs above 1,075 euros hit in December.

Brebner added that the withdrawal of accomodative monetary policy was causing concern as it could derail growth and lead to deflationary pressures.

'In that kind of environment (deflationary) gold will outperform industrial commodities. Gold is a deflation hedge, it is often used as a currency and by definition currencies outperform in deflationary environments.'-Reuters